Perfection

Question 1

What is perfection

Answer 1

Notice to other parties who may want to make a loan to the debtor or buy the collateral to which a security interest has already attached

Question 2

What are the methods to perfection (once attached)?

Answer 2

Filing
Possession
Control
Alternative Perfection System
State certificate of title law (car or motorcycle)
Automatic perfection (temp or permanent)

Question 3

True or false: perfection by filing is applicable for perfecting all collateral

Answer 3

False.

Exceptions to filing: bank accounts, money, letters of credit, or collateral subject to other perfection methods

Question 4

Where does one file a financing statement?

Answer 4

Central filing office in the state where debtor is located
+ corporation: state of incorporation
+ business not registered: state in which it operates – multiple states, chief executive office located
+ individuals: state of principal residence

Note: security interests in real property related collateral are filed in the county where property is located

Question 5

True or false: If a secured party files a financing statement in the wrong location, there is no perfection

Answer 5

True – beware of fact patterns with multiple states

Question 6

A financing statement requires:

Name of the debtor
Name of the creditor
?

Answer 6

3. Description of the collateral

AND required, but non-essential:

4. address for both debtor and secured party
5. Individual v. organization debt

Question 7

What are the additional terms that a financing statement for real-property-related collateral?

Answer 7

1. Indication that a security agreement covers this type of collateral
2. To be filed in the local real property records
3. Describes the real property to which collateral relates
4. Name of the record owner of the real property, if debtor is not the person who has an interest in the real property

Question 8

True or false: recording the mortgage in the local real property records can satisfy the financing statement requirements if it contains the requisite information

Answer 8

True. And it need not note that it is filed in the local real property records

Question 9

How can a debtor authorize a financing statement?

Answer 9

1. sign the financing statement
2. Authentication

Question 10

True or false: a registered organization debtor may include its trade name in its filing?

Answer 10

False – use name on articles of incorporation or last public organic record filed with the state

Question 11

What is the majority rule for individual debtors and the name on their filing?

Answer 11

Use the state issued id. No id? legal name on birth certificate or passport.

Question 12

True or false: secured parties must use the same collateral description for their security agreement in the financing statement

Answer 12

False. A financing statement can be super generic and need not mention proceeds or after-acquired property or future advances

Question 13

Are minor errors in a financing statement a bar to perfection?

Answer 13

Generally, no, as long as the financial statement is not seriously misleading.

Note that name errors are almost always seriously misleading

Question 14

How long do financing statements once perfected last?

Answer 14

five years after the date of filing, unless continued within 6 months before the statement lapses

Question 15

What happens to a financing statement once the obligation is paid back?

Answer 15

A termination statement voids the financing statement

Question 16

What kinds of collateral can be perfected by possession?

Answer 16

1. Money
2. Goods
3. Instruments
4. Negotiable documents
5. Tangible chattel paper

Question 17

True or false: in perfection by possession, as soon as the secured party has possession, the interest is perfected

Answer 17

True, it’s perfected as long as the secured party retains possession

Question 18

What kinds of collateral can be perfected by control?

Answer 18

1. Deposit (bank) accounts
2. Investment property
3. Electronic docs
4. Electronic chattel paper
5. Letter of credit rights

Question 19

If a lender files a financing statement to perfect a security interest in a deposit amount or letter of credit right, what is the effect of the filing?

Answer 19

Ineffective, not perfected because perfection by control is the only acceptable method for those two types of collateral.

Question 20

How can control be obtained over a deposit account?

Answer 20

1. Secured party is the bank that has the deposit account (lender and bank are the same)
2. Secured party, bank, and debtor agree in an authenticated doc (lender has control)
3. Secured party can become the bank’s customer

Question 21

What collateral must be perfected under state certificate of title?

Answer 21

Cars, motorcycles, or other vehicles with a title

Perfect by noting security interest on that certificate of title

Question 22

True or false: cars that are inventory can be perfected by other means

Answer 22

True. Exception to the certificate of title requirement.

New cars likely do not yet have a title when purchased, so there’s no title on which to note the lien. Filing works.

Question 23

True or false: a purchase money security interest in consumer goods automatically perfects

Answer 23

True, unless a state’s certificate of title statute governs

Question 24

True or false: A purchase money security interest in inventory, equipment, and farm products is automatically perfected

Answer 24

False, just PMSIs in consumer goods

Question 25

What happens if a party fails to file an updated financing statement after the 4-month window expires?

Answer 25

Collateral that is acquired before the name change and collateral acquired during the period = covered/perfected

Collateral acquired after the period = not perfected

Question 26

Must a secured party refile if a debtor moves out of state?

Answer 26

Yes, the secured party must refile in the new state within a four-month window to remain continuously perfected

Question 27

What happens if collateral is transferred to a new debtor who lives out of state?

Answer 27

The secured party has one year to file a financing statement listing the new debtor